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  When executive pay is big, our desire to invest is small

BENJ GALLANDER and BEN STADELMANN

Friday, May 14, 2004

About 25 years or so ago, when we were two wet-behind-the-ears lads with our university days behind us (at least for the moment), we were hanging about, musing. A favourite introspection in those days was how to make lots of money quickly, with a nominal amount of effort. Our primary options appeared to be the racetrack, blackjack in Vegas, and winning a lottery.

Perhaps if our conjecturing at the time had been more open-minded, we'd have realized that one of the best methods for making oodles of dough is by becoming head of a corporation and being drastically overpaid.

Some Canadian executive salaries, bonuses and options that raise our antennae include Tony Comper at Bank of Montreal, Hunter Harrison of the Canadian National Railway, John Hunkin at Canadian Imperial Bank of Commerce, Bernard Isautier at Petrokazakhstan, Raymond McFeetors at Great-West Lifeco, Randall Oliphant at Barrick Gold, Daniel O'Neill at Molson, Philip Orsino at Masonite International, Gerald Schwartz at Onex, and Frank Weise at Cott.

Some people at Power Corp. are also handsomely rewarded, including Andre and Paul Desmarais and Robert Gratton. At Magna International, a number of salaries seem otherworldly to us, including those of Frank Stronach, Manfred Gingle and Siegfried Wolf. Maybe Belinda will have to return full-time to re-embark on the gravy train.

On the U.S. side of the border, the packages of Chuck Cawley of MBNA, John Chambers of Cisco Systems, Larry Culp Jr. of Danaher, Larry Glasscock of Anthem, Tim Donahue of Nextel Communications, Hank Greenberg of American International Group, Ray Irani of Occidental Petroleum, Steve Jobs of Apple Computer, Bruce Karatz of KB Home, Albert Lord of Sally Mae, and Ed Whitacre of SBC Communications all move towards the astronomical.

The Americans also have some corporations who pay their top brass to excess in bunches, including the trios of Chuck Prince, Sandy Weill and Robert Willumstad of Citigroup, and James Cayne, Alan Schwartz and Warren Spector of Bear Stearns.

Course, few of these bigwigs compare with John Roth, former head of Nortel Networks. There was a gent who knew how to gather the clover and leave when the deep freeze was descending. Just like in the stock market, it is handy to understand the essence of t-t-t-t-t-timing.

Naturally, the above is only a partial list. We apologize to others who should have been included.

Are these people worth their compensation? We believe that any pay package over $5 million per annum — okay, for the sake of argument, call it $10 million — is unfair: to corporations, to shareholders, to regular workers, to society. The idea that companies have to get the "best," and that the only way to do this is by paying ridiculous amounts of money, is outlandish. And of course, often the "best" is not as advertised.

Simply put — and simple is often the best analysis, as it can point to the obvious — money that goes to management cannot go to shareholders. Therefore, situations where management is overpaid negatively impact our returns as investors. We do not like that, so the the likelihood of our acquiring shares in any of these firms is remote.

It seems to us that once people's net income exceeds $5 million a year, the "excess" should be taxed at a higher rate — say, 60 percent. While many big earners would spit and gripe, and some might even seek tax-advantaged havens, it seems reasonable that they should be assessed at a more progressive rate.

This band of merry men hits the lottery numerous times in a single year. Given the number of people we know struggling along earning $15 an hour and less, this seems blatantly unjust.

So much for musing.


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